The Economist - USA (2022-05-14)

60 Business TheEconomistMay14th 2022

weeksonOpenSea,a bignftmarketplace.

The industry has suffered from an

abruptreversaloffortunes,explainsMark

MahaneyofEvercoreisi, an investment

bank.Inrecentyearsmorethanonefactor

gavetech aboost:the coronaviruspan­

demicpushedlifeandworkonline;gov­

ernmentstimulusprogrammesfurtherin­

creaseddemand;andsuper­loosemone­

tarypolicymadetech’slong­termgrowth

moreattractivetoinvestors.Nowpeople

areturningawayfromscreensandleaving

homeagain;thewarinUkraineiscreating

paralysing uncertainty; and economies

aroundtheworldaresufferingfrominfla­

tionandsoon,perhaps,recession.

Thentherearerisinginterestrates.Be­

sidespossiblytriggeringa downturn,they

reducethepresentvalueoftechcompa­

nies’profits,mostofwhichliefarinthefu­

ture.Ifinflationdoesnotcomedown,cen­

tralbankswillpileonmoreraterises,put­

tingfurtherpressureonriskytechstocks.

How bad will things get? Although

stockmarketshavestabiliseda bitinrecent

days,nooneisreadytocallthebottom.

Justasmarketshaveovershotinthepast

fewyears,theycanundershoot.Thereis

moreofa consensusoverwhatcouldhap­

penwhenthedusthassettled.According

toDanielIvesofWedbush,anotherinvest­

mentbank,thetechindustryisata “forkin

theroad”.Asinterestratesgoup,heargues,

investors will turn their back on more

speculativegrowthstocksandfocusonthe

qualitynamesintech.

Noprizesforguessingwhichones.Al­

though the combined market value of

America’stechtitans—Alphabet,Amazon,

Apple,MetaandMicrosoft—hasdropped

bynearly25%sinceNovemberandtheir

latestresultswerelessstellarthaninearli­

erquarters, theyremainsafebets.Together

theybooked$359bn inquarterlysalesand

$69bninnetprofits.Theircorebusinesses

arestillgrowing—inparticularcloudcom­

puting. Collectively, Alphabet, Amazon

andMicrosoft, theworld’s three biggest

cloudproviders,tookin$43bnofsales for

suchservicesinthefirstthreemonthsof

2022,upby33% froma yearearlier.

More unexpectedly, older tech and

hardwarestocksseemindecentnick,Mr

Ivesnotes.Intel,aveteranchipmaker,is

downbya relativelymodest13%sinceNo­

vember.ibm, a softwareicon,isupby12%.

Makersofbusinesssoftwarewithsteady

sales andhighmargins, suchasAdobe,

OracleandSalesforce,mayreboundfast.

HardthoughitmayseemgivenCoinbase’s

crashonMay11th,somaypaymentsand

cryptoplatforms,whichhavejoinedthefi­

nancialmainstream.Cyber­securityfirms,

suchasCrowdStrikeorPaloAltoNetworks,

couldseetheirfortunesreturnthanksto

fears of Russian and Chinese cyber­at­

tacks.GeopoliticalriftsmayevenliftPa­

lantir,a secretiveanalyticsfirmthatworks

withsecurityservices,whoseshareprice

plungedby20%onMay9thafteritdis­

closedslowingsalesgrowth.

Persistentlyunprofitablegig­economy

firmslookshakier.Uber,theride­hailing

anddeliverychampionwhichreportedon

May4ththattripsandusersrosebynearly

a fifthyearonyearinthefirstquarter, still

lostnearly$6bn.Theheavyrepricingof

video­streamers,withmultibillion­dollar

contentexpensesandreversing(Netflix)

orevensteady(Disney)subscribergrowth,

maybepermanent.Thesamemaybetrue

forsecond­tierfirmsinareassuchassocial

media (Snap) or e­commerce (Shopify),

whicharedominatedbyMetaandAma­

zon,respectively.

Itwouldbewrongtocomparethecur­

renttechslumptotheburstingofthedot­

combubbletwo decadesago.Backthen

companieshad neitherhealthybalance­

sheets nor promising business models.

Nowadaysmanyofthemhaveboth.The

stomach­churning market gyrations are

unpleasanttoagenerationoftechfoun­

ders,workersandinvestorswhohavelived

alongbullrun.Buttheyareunlikelyto

stopdigitaltechnologyeatingtheworld. n

Snap, crackle...

United States, tech companies

Marketcapitalisation,$trn Financials, cumulative, $bn

Stockmarketindices,January1st2020=100 Initialpublicoerings†,$bn

*Combinedtopthreecompanies,excludingbigfive †Includesnon-techcompanies ‡Special-purposeacquisitioncompanies §To May 10th

4,000

3,000

2,000

1,000

0

2221202019

Bigfive

Operating

profit

Revenues

Sources:RefinitivDatastream;Bloomberg;Dealogic

3.0

2.5

2.0

1.5

1.0

0.5

0

Crypto/payments

Socialmedia

E-commerce

Business

software

Gigeconomy

Streaming

Meta

Amazon

Alphabet

Microsoft

Apple

Bigfive:

Otherselected

sectors*:

2221202019

Streaming*

2221202019

Business software*

400

300

200

100

0

2221202019

Crypto/payments*

2221202019

Gigeconomy*

2221202019

E-commerce*

100

0

-100

2221202019

Social media*

Other

SPAC‡

§

150

100

50

0

2020 21 22

250

200

150

100

50

2020 21 22

S&P 00 NASDAQ Composite

FTSE Renaissance IPO

2019 20 21 22